- 1MDB is one of the biggest financial scandals of all-time.
- It’s so wild it’s got links to the Wolf of Wall Street film, Miranda Kerr, and Donald Trump.
- The latest news is that 17 former and current Goldman execs have been charged over the scandal.
- We broke down all the major events for you that stretched all the way back to 2009.
The story of 1 Malaysia Development Berhad (1MDB) just got crazier.
17 current and former Goldman Sachs execs are now facing criminal charges in Malaysia because of their alleged involvement in the 1MDB scandal. Michael Evans, who is president and international face of Alibaba, the China e-commerce giant, is one of those 17 former Goldman directors.
The 1MDB scandal is one of the biggest financial scandals of all time, bringing down Malaysia’s prime minister. The prime suspect is still on the run, and now Goldman Sachs is in the firing line.
The 1Malaysia Development Bhd started by buying privately owned power plants and planning a financial district in Malaysia’s capital Kuala Lumpur.
However the fund was rather good at collecting debt, amassing $12 billion, instead of foreign investment. The issue being most of the money raised was allegedly embezzled or laundered. The US Justice Department said that more than $4.5 billion went through fraudulent shell companies to corrupt officials, according to the Washington Post.
Jho Low, the lead businessman in the scandal, has been on the run for months. He’s accused of diverting money from 1MDB into personal accounts disguised to look like legitimate business. The money allegedly went straight to the wallets of corrupt officials.
This is the history of 1MDB and the characters that made it:
1Malaysia Development Berhad, or 1MDB, was founded in 2009 just four months after Najib Razak became Prime Minister of Malaysia. Ensnared in the scandal, he later lost reelection and was charged with abuse of power and criminal breach of trust in relation to SRC International, a former 1MDB unit. Najib pleaded not guilty charges and has consistently denied any wrongdoing in relation to 1MDB.
The fund was originally set up to finance infrastructure and other economy-linked deals in Malaysia. But the fund veered into lavish spending, producing films such as “The Wolf of Wall Street” and buying casinos, champagne and “Dustheads,” a painting by US artist Jean-Michel Basquiat.
An estimated $4.5 billion was misappropriated from 1MDB by high-level officials and their associates between 2009 and 2014, the US Department of Justice has alleged. Razak has consistently denied wrongdoing. The scandal spreads across a number of companies and financial institutions with eye-watering sums involved.
In 2012, officials from 1MDB met with Goldman Sachs in Hong Kong to discuss a bond deal which would eventually lead to mega fees for the bank (and now, potentially, mega fines). Goldman raised $6.5 billion for the fund. Malaysia’s government said it will seek “well in excess” of the $2.7 billion it says was misappropriated, as well as the $600 million Goldman earned in fees.
Between 2012 and 2013, Goldman arranged three bonds worth $6.5 billion for 1MDB with fees totalling $593 million, or 9% of the total, higher than the average fees paid on such deals, according to critics. Malaysian prosecutors say that Goldman Sachs made untrue statements and omitted key facts in offering circulars for the bonds it sold for Malaysian state fund 1MDB.
Goldman denied the allegations, telling Business Insider: “Certain members of the former Malaysian government and 1MDB lied to Goldman Sachs, outside counsel and others about the use of proceeds from these transactions. 1MDB, whose CEO and Board reported directly to the Prime Minister at the time, also provided written assurances to Goldman Sachs for each transaction that no intermediaries were involved. Under the Malaysian legal process, the firm was not afforded an opportunity to be heard prior to the filing of these charges against certain Goldman Sachs entities, which we intend to vigorously contest. These charges do not affect our ability to conduct our current business globally.”
In 2013, 1MDB raised eyebrows after it asked for a six-month extension to file its annual report. The company had changed its auditors on three occasions at this point, furthering suspicions. It was also alleged that 1MDB had placed $3.8 billion of its money with overseas fund managers according to accounts signed off by Deloitte.
Source: The Star
Questions arose about the fund’s transparency and performance as early as 2010. But international exposure became more pronounced in 2015, when 1MDB’s bonds, then worth around $12 billion, were downgraded to junk status by ratings agencies Standard and Poor’s and Fitch.
Source: Malay Mail
In February 2016, the US FBI began probing the connection between Tim Leissner, a top regional executive of Goldman Sachs, with former Prime Minister Najib Razak. Leissner has since pleaded guilty in the US to conspiracy relating to money laundering and bribery. It’s alleged that Leissner had a cozy relationship with Malaysian officials and may have used bribes to further Goldman’s business in the country.
Leissner, the former Goldman executive, has been charged with money laundering and corruption by the Malaysian government alongside former 1MDB employee Jasmine Loo Ai Swan and Jho Low. Low is the Malaysian financier believed to be at the heart of the scandal. Another former Goldman executive, Roger Ng, was also charged with corruption and money laundering in Malaysia. Leissner is reportedly cooperating with US authorities. Low is believed to be currently on the run somewhere in China.
The President has even been linked with the scandal. The DOJ was allegedly probing a $100,000 donation to President Trump’s Victory PAC in 2017, which may have come from funds linked to disgraced Malaysian financier Jho Low, according to the Wall Street Journal. The donation was made in December 2017 by Larry Davis, co-owner of LNS Capital, as part of a campaign to re-elect Trump in 2020. The DOJ is trying to establish whether $1.5 million transferred to LNS Capital seven months earlier by Low were used to finance the donation, the WSJ said.
One of the peculiarities of the 1MDB scandal was the role played by young Malaysian financier, Jho Low. Legal documents filed in the US paint a picture of a spectacular fraud. They claim that Low diverted millions in investment money to fund a lavish lifestyle of yachts, parties, jewelry, and celebrities. At another point, Low dated the model Miranda Kerr, who was later required to return jewelry he gave her.
Source: Business Insider
An Abu Dhabi wealth fund called International Petroleum Investment Corporation, and its subsidiary, Aabar Investments, sued Goldman Sachs in New York over money lost as part of the scandal in 2015. The civil action by IPIC, a former partner of 1MDB, claims that Goldman and others “played a central role in a long-running effort to corrupt former executives of IPIC and its subsidiary Aabar Investments, and mislead IPIC and Aabar.” IPIC said the scandal was “a massive, international conspiracy to embezzle billions of dollars.” Goldman said it will contest the claims “vigorously.”
In 2015, billions of dollars of loans issued by 1MDB, arranged by Goldman Sachs, were guaranteed by IPIC. IPIC claimed the fund defaulted on $1.1 billion in repayments in 2016 and Malaysia’s then-government agreed to pay the UAE investment fund, a settlement which has since been challenged by the country’s new government.
Source: Business Insider
The scandal has touched the top of both Goldman and the country’s government: Before the debut of the fund, former Goldman CEO Lloyd Blankfein reportedly met with both the Malaysian prime minister at the time and Jho Low. Goldman’s stock is suffering amid fears by some analysts that the bank may have to pay billions in fines.
Source: Business Insider
In May 2018, a surprise Malaysian election result saw the ruling party ejected for the first time since independence in 1957. Razak was removed from power and a special position audit was ordered into 1MDB by the new coalition and will be conducted PriceWaterhouse Coopers.
Malaysia’s ruling coalition faces up to $10.5 billion in debt repayments linked to the state investment fund and is grappling with a weak fiscal position, having revised the 2018 fiscal deficit from 2.8% to 3.7% in the latest budget issued in early November. The country has cancelled major infrastructure projects including two oil and gas pipelines and a $795 million pipeline linking the state of Malacca to a Petronas refinery and petrochemical plant in the state of Johor in order to balance its books.
Roger Ng will return to the US to face criminal charges against him, his lawyer said on Thursday. Ng, who left Goldman in 2014, has been detained in Kuala Lumpur since November 1. Malaysia’s new government has also charged Ng and former Goldman executive Tim Leissner with corruption, money laundering, and violating anti-bribery laws. Singapore’s central bank and the Federal Reserve have banned Leissner from the banking industry.